A Guide to Successfully Planning Ahead with Your Finances

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Successful financial plans depend on intentional thought and discipline. By sitting down and writing a plan on paper, your odds of success increase dramatically. However, many never do this simple step and lose out as a result. If you would like to create a long-term plan, here are a few tips to get started.

Create Realistic Financial Goals

A solid plan must be guided by financial goals set according to your vision. Instead of thinking about how you can serve your money, consider what it can do for you. From home buying to retirement planning, goal-setting is crucial and necessary when planning. Typically, a financial advisor would recommend using inspirational goals when completing this step. Therefore, it may help to ask yourself where you would like to be in life in five years. Would you like to be a homeowner, or maybe you would like to be a parent by then? These goals will act as a focal point during tough decisions regarding your finances.

Consider Purchasing an Annuity for Long-Term Care

Once someone retires, their lack of earnings can be shocking at first. Yet, a long term care annuity supplement cash flow, helping seniors maintain some revenue. Normally, a single lump sum is paid to an insurance company, and they pay you in installments later on. Moreover, the monthly payments can multiply the total amount invested by two or three. If you have decided to go down this route, pay attention to the contract's wording. Some will pay you over a lifetime, but others only payout for a limited period.

Measure Your Monthly Cash Flow

After developing some goals, begin tracking your cash flow month to month. Tracking monthly cash flow gives individuals a sense of direction and purpose. Whether you are saving or paying down debts, knowing where your money is going will help. Additionally, many financial planners use a 50/30/20 rule as a guideline. In other words, half of your money should be used on needs, ranging from housing to transportation. Another 30% should be utilized on wants, such as restaurants and new clothing. Finally, the remaining 20% should be allocated toward savings and investments, like retirement.

Utilize Employer-Sponsored Matches

Has your employer offered to sponsor a 401(k) and match your contributions? Nowadays, many companies offer to match employee-made contributions to these accounts. An employee can effectively increase their monthly earnings by capitalizing on their match. Despite decreasing take-home pay in the short term, your 401(k) contributions will pay off. Over time, these tax-advantaged investments usually grow faster than savings. Since most 401(k)s are invested in the stock market, they tend to outperform interest earned on savings. Plus, your employer will add additional funds to the stash each time you pay into them.

Start by Building a Rainy-Day Fund

Occasionally, things happen, and you need to be prepared for an unexpected emergency. For example, what would you do if the tires blew out on your car all of a sudden? Stashing a small lump sum, along the lines of $500, would be enough to cover most minor emergencies. Nevertheless, most financial advice recommends saving several months of expenses to be safe. Consequently, you should calculate how much you spend each month. Then, multiply that by six as a rough estimate, and save about that much. Another option would be to expand your available credit by opening up accounts. However, you should not use any of those funds if you want to have them in an emergency situation.

Research Potential Retirement Accounts

A 401(k) or a 403(b) are usually the default retirement accounts employers provide. Regardless, other retirement-planning accounts, such as a traditional or Roth IRA. If investing in a 401(k), expand your contributions until you have reached the IRS limit of $19,500 per year. If using an IRA, your annual limit is $6,000 a year, and it expands to $7,000 after age 50. These accounts all allow investors to avoid paying taxes, amplifying savings overall. Ask an advisor whether a 401(k) or IRA would be most beneficial to you now, as each person's circumstances differ.

The Fundamentals of Financial Planning

Everybody wants to ensure their future is sound, and finances are a huge part of that. Besides these tips, it would also be helpful if you eliminated high-interest debts. By paying these down, your net worth will not have as much dragging on it over time.